For the past few months, we have been vigorously working to complete an integral component of our business model – The Axios Financing Toolkit.

This toolkit is a guide for companies who are looking to start a financing program for their products.

It is a step-by-step guide to setting up a financing program that, among other things, helps companies:

Determine the type of products suitable for financing

Identify and obtain funding for their financing program

Create an application

Evaluate an application

Develop loan/lease terms

Ensure timely repayment.

We have just ordered our first set of these and they will be arriving in a few short weeks. If you or someone you know could benefit from this toolkit, we’d love to send you a copy! You can use the form found at axiosimpact.com/toolkit to request one.

We have had a lot of conversations over the past 18 months. Conversations with entrepreneurs, social innovators, wealth managers, financial advisors, thought leaders, pension fund directors, foundation heads, and so on, and so on. The conversations have ranged in depth and breadth, but our underlying topic of discussion has focused on the oh-so-popular and en vogue term – impact investing.

Now impact investing can be a very ambiguous term, defined by broad reaching strokes. For some, it’s defined by impact leading metrics with little focus on financial returns. For others, it is investments that return market rates with a nicely attached story that brings a smile to your face. The world of impact investing is a nebulous space and we’ve heard A LOT of definitions.

Throughout our conversations though, there has been a constant – and that constant is the demand. One pension fund director, with more than a billion dollars under management, told us that her clients are chomping at the bit for impact investment opportunities. Some reports throughout the financial world predict numbers upwards of a trillion dollars could be available for impact investing opportunities in the next five years. Time and time and time again we have been told, in paraphrased form – if you build it, they will come.

But is the opportunity to invest with impact really an impending deluge? Some of the hype could make you believe that the first person to unlock the gates of the impact investing world would bring the second coming of the Great Flood – only this time the world would be covered with glittering silver and gold, pouring across mountains and streams on a quest to end poverty, reverse global warming and bring smiles to everyone.

It seems (to us at least), that the true potential of impact investing rests somewhere in between the lines of blurry and opaque. There is no one panacea that will alleviate the itching demand of impact investors. Nor is there one opportunity that will act as the key to castle that holds all the money of the impact investing kingdom. The bigger question seems to be, are investors willing to change their frame of reference and ingrained behaviors?

The name of the game in investing is finding a method or system that works for your tolerance for risk and your desire for return or reward. There are a myriad of techniques and methods employed today, but it seems the problem for impact investing may be that these myriad of traditional approaches may not work in the “normal” way. In today’s world of impact investing, how we define and measure risk, build investment opportunities, return profits and define our repayment schedules may look different than what traditional investors are used to.

Accepting these investment opportunities that have a different look and feel than the status quo is going to present challenges in behavior change and widespread acceptance. We at Axios see this as one of our greatest challenges and opportunities. We believe the opportunities are out there for investors to find financial returns while driving positive societal impact – but that world of opportunity is a foreign one that the investor community is going to have to explore and learn before becoming totally comfortable in the new environment.

One of the biggest hurdles in implementing a financing program is determining who to lend to and leads to the all-important question:

How can you reliably determine who will pay you back?

To answer this, it is important to understand the factors that can affect repayment for a customer. We divide these factors into 2 main categories: Ability to Pay and Willingness to Pay. While it may seem over simplified, nearly all loan default can be traced back to one of these two elements, so a thorough understanding of these will go a long way in determining the individual factors that can contribute to successful loan repayment.

Ability to Pay:

This category refers to the indicators that determine whether a customer will be able to repay a loan. In this category are things like a customer’s income vs. their expenses (Do they make enough money to afford the loan payments?) and an understanding of the risks that may lead to non-payment (Are there environmental, cultural or political risks that could cause this person to not be able to afford their payment?).

A greenhouse such as this can increase a farmer’s income 4x in just 1 year – More than enough to repay a loan.

Axios Impact Investments works primarily with agricultural products. Our model focuses on only financing products that have been demonstrated to substantially increase a farmer’s income. We know that if a farmer successfully utilizes one of the products we finance, their income will increase such that the loan repayment will not be a burden for them. In this way, we can be confident in the farmer’s “ability” to repay a loan.

Another way we ensure ability to pay is to structure the loan repayment around a specific harvest schedule. A farmer cannot typically make weekly payments if they only get paid once or twice a year at harvest so we structure our loans to increase their ability to pay, by aligning payments with the realities of the agriculture space.

Willingness to Pay:

The other category which is oftentimes much harder to determine is whether a person is willing to repay you, regardless of their ability to do so. This is basically making a determination on the character of a potential borrower, combined with the social and regulatory systems in place to help enforce their committment . There are many different theories on how to judge a person’s willingness to pay and some pretty intriguing models out there that we’ll discuss in a later post. In general, good indicators include their prior borrowing history, their community involvement, willingness to put forward a down payment, and references who can speak to a borrower’s character.

Keeping these two categories in mind throughout the entire loan process is critical to a successful financing program. Just because someone is willing to pay does not mean they necessarily will be able to. And on the flip side, just because someone is able to pay does not mean they will be willing to do so. We oftentimes see applications that address one or the other of these categories, but to be able to adequately analyze a potential borrower, it is important to assess both their willingness and ability to pay.

Are you interested in determining the willingness and ability of your customers to repay? Review our Partner with Us! page for more information.